The National Credit Union Administration board has extended the current interest-rate ceiling on loans originated by federal credit unions through September 10, 2012.
This means the maximum allowable Annual Percentage Rate (APR) remains 18% for most loans and 28% for loans made under NCUA’s recently approved Short-Term Small Loan program.
Given today’s low interest rates, the NCUA Board had considered lowering the interest-rate ceiling for most loans to 15%.
The recent trend in rates, however, is upward. In a rising-rate environment, the NCUA Board determined that lowering the current ceiling could have impaired the safety and soundness of federal credit unions that are making some loans at 15% to 18% APR.
Even more important, maintaining the current ceiling will preserve access to credit for borrowers with low incomes and/or low credit scores, it said.
Nearly 20% of federal credit unions with some outstanding loans at 15% to 18% APR are formally designated as low-income credit unions.
Loans in the 15% to 18% range are typically unsecured and risk-priced based on each borrower’s credit score. The lower the credit score, the higher the risk – and the higher the rate.
Keep in mind that banks and non-bank lenders don’t usually “cap themselves” this way. So, if you borrow from anyone but a credit union, be sure to read the fine print before you sign.